Three Ways to Improve Your Financial Life in 2012

As we move through the last days of December, with its cold nights and warm family cheer, we should take a moment to think about what New Year’s resolutions we might make to improve our financial lives in 2012. Here are three items you may not have considered.

1. Review Your Liability Policy

How long ago was it when you bought your house or a car? Both purchases require you to speak with an insurance agent. Unfortunately, most people consider those set-it-and-forget-it policies when in reality they should be reviewed periodically. I can’t tell you how many of our clients here at Pinnacle Advisory Group have stayed in their homes for decades without having revisited their liability policies before coming to us. That can be a very costly mistake.

My wife and I recently moved out of Baltimore, and I called my insurance company to make the change on our home and automobile policies, knowing that our premiums would go down due to the break-in rate in Baltimore. They did — the car insurance premiums alone dropped 40%.

While you’re probably not in the process of moving out of a high crime city, reviewing your policies is still a good idea. You may well find that your home is underinsured — maybe because you bought a less expensive policy when you were younger and needed to save money. Now with more resources at your disposal, you may want to maximize your insurance coverage to protect what you have.

2. Review Your Investment Policy

A sound investment policy should be the guiding principle for every wise investor. After all, when the market is in turmoil and contradictory advice is coming from every direction, how will you make the right investment decisions?

The summer of 2011 started off badly. The troubles in Europe and the debt/deficit debate in Washington, D.C. shook Wall Street (not exactly a place that enjoys a lot of unknowns). As the fiscal debate crept closer to the August deadline, the U.S. equity markets cratered, falling as much as 15% in four weeks. For many of our clients, it felt like the market disaster of 2008, all over again. While our investment team had already taken precautions to protect our portfolios, some of our clients wondered whether they wanted to remain invested in the stock market at all. We discussed with them the potential risks in both sticking with their policies and changing them, and helped them evaluate which decisions would be best. Some ended up modifying their policies to match the new economic conditions, while others concluded that their initial decisions were best. Both groups were right.

The fact is, I find myself talking to my clients about their risk capacity — how much risk they can afford to take — even more than their risk tolerance (how much risk they are willing to take). There’s an important distinction between the two. Your risk tolerance is related to your personal peace-of-mind, while your risk capacity bears directly on your financial situation.

If your only guideline for your investment policy was a six question quiz that told you whether or not you are an “Aggressive” or “Conservative” investor, then you need to revisit that policy.

3. Simplify Your Life

When Steve Jobs passed away in October, he left behind a technological legacy that has literally changed the shape of our civilization. But he also gifted us with some truly profound advice:

Simple can be harder than complex. You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.

Our lives these days are increasingly complex, with the financial aspects among the more dizzying. What’s your tax strategy? How much liability coverage do you have? Is your car and homeowner’s policy in line with your umbrella policy? Are you saving enough for your child’s college education? And how about your own retirement? Is college-saving more important than retirement-saving? What’s your business succession plan? You get the idea.

With that in mind, what can you do to simplify your financial life? Is having four different advisors the right way to keep your eggs in separate baskets… or does it just add more confusion? Do you have multiple bank accounts or CDs at different institutions because the rate is 0.1% better at one place than the other? Are your liability policies all with one carrier? Most importantly, have you put a financial plan in place and do you review it regularly to keep yourself on track? Now is a great time to re-evaluate these things, and make decisions that will simplify rather than muddle an already complicated part of modern life.

While financial decision-making can be complex, it isn’t rocket science. You can take small, incremental steps right now to significantly improve your life in the coming years. And that’s an investment you can’t afford to pass up.

Author: Pinnacle Advisory Group

Pinnacle Advisory Group is a private wealth management firm, founded in 1993 and headquartered in Columbia, Maryland, with offices in Naples and Miami, Florida. We work with more than 1250 families and manage over $2 billion in assets for clients around the world.

Pinnacle Advisory Group is a private wealth management firm, founded in 1993 and headquartered in Columbia, Maryland, with offices in Miami and Naples, Florida. We work with more than 1250 families and manage over $2 billion in assets for clients both in the mid-Atlantic region, and around the world.
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